The TTC board has been accused of “sole-sourcing” its lease with the operator of 65 Gateway newsstands.
The TTC is backing away from a 10-year, $48-million lease extension with its existing newsstand provider following an outside consultant’s report that recommends the subway newsstands be put out to tender.
The TTC board is expected on Monday to withdraw its previous decision to extend its lease with Tobmar Investments International, which runs 65 Gateway newsstands, some lottery booths and bakeries in the subway.
Instead, it will likely act on the recommendation of Altus Group Ltd., an international real estate consultant.
A competitive bidding process will ensure that others would have an equal opportunity to retain the subway business and also that the TTC will get the best possible deal, says the Altus report.
“To date the TTC has no assurances that other potential providers capable of providing attractive offers have not been precluded from submitting an offer,” says the report.
Going back on its word will cost the TTC $3 million because the Gateway leases, which don’t expire until next year, were retroactive to this year, said Stintz, the city councillor for Eglinton-Lawrence.
“What was a lease extension became a political issue and now we’re going to lose $3 million,” she said.
Stintz has called the Tobmar agreement an “unsolicited proposal.” But on Sunday she said the TTC actually approached the company first to ask it to upgrade its stores before the Pan Am Games in 2015.
“It was on that basis Gateway negotiated,” she said, adding that Tobmar has been a good partner and that “the lease was extended several times over the last 19 years.”
The deal gave the TTC a 67 per cent rent increase, a $1.5-million signing bonus and the promise of $1.5 million in store renovations. It also gave Tobmar first rights to six more TTC locations that are currently vacant. The 10-year extension included an option for an additional five years on the lease.
Once the details became public though, International News released an “unconditional offer” it said was more lucrative.
Stintz expects the tendering process will be launched late this year or early next year “to minimize any transition in the event our current tenant was not the winning proponent.”
The TTC board originally agreed to the Gateway lease extension in October but it re-opened the issue in January to add a provision forcing Tobmar to open up for bidding the rights to distribute free newspapers in the subway. Metro, which is owned by the Toronto Star, currently owns those rights.
In a letter to her fellow TTC commissioners, Stintz said it came as a surprise in January when TTC staff reversed an earlier recommendation to extend the Gateway lease.
“Senior staff did not take into account that the TTC would lose millions in revenue already budgeted in the approved 2013 operating budget or that this would mean that the original capital improvements that the TTC requested in time for the Pan Am games would not be achieved. Furthermore, any turnover of operator will likely result in a service disruption and further loss of revenue,” she wrote.
Three members of the Toronto Transit Commission voted against the lease extension in January. They were councillor Josh Colle, and citizen members Anju Virmani and Alan Heisey.
Colle said afterward, he voted against it because it was “cleaner,” not because he believed there was anything wrong with extending the lease.
The Altus report notes that International News and another company, New York News, had the benefit of seeing Tobmar’s offer. The Gateway operator, however, has not had the opportunity to counter, since those companies came on the scene, said Altus.
Based on “a very preliminary review of the websites,” the Altus report says, “that International news is an experienced newsstand operator and therefore we presume that it is sufficiently capable to submit a valid and credible bid.”
“With respect to New York News, we are unclear as to the number of locations operated . . . and therefore cannot comment on the demonstrable newsstand operational experience,” said the report.
The legal implications for the TTC of withdrawing from the Tobmar agreement remain unclear.
The Gateway newsstand lease extension has been likened to the another city agreement with Tuggs Inc., which was contracted to run the Boardwalk Cafe and several other east-end concessions in city parks for 20 years.
Minutes from the TTC:
11. Newsstands Agreement and Newspaper Distribution in the Subway
The Commission received the report for information, without recommendations.
See also Item No. 12 for minute.
12. Reconsideration – Gateway Lease (October 24, 2012)
Chair Stintz moved the following motion:
That the Commission reaffirm the two recommendations contained in Report #12, as follows:
“It is recommended that the Commission approve the following:
- The execution of a lease agreement with Tobmar Investments International Inc. (Tobmar) for the continued operation and management of the Gateway Newsstands in the subway system under the terms and conditions outlined in this report and further detailed in a letter from Mr. Michael Aychental, CEO – Tobmar Investments International Inc., dated October 1, 2012;
- Amend the existing lease agreements with Tobmar associated with the bakeries, cafes and lottery locations to consolidate the terms for ten (10) years commencing December 1, 2012 to November 31, 2022 with a five (5) year option, adjust the rents and further amendments, as set out in the report and Attachment 1”.
Chair Stintz further moved that the distribution of free newspapers be the subject of a separate RFP issued by Gateway and; the TTC be part of the evaluation process for the selection of the successful proponent, along with Gateway.
Discussion ensued regarding this motion and Commissioner Virmani moved that this discussion go in-camera.
The motion by Commissioner Virmani failed on a vote of 5-5.
The Commission then voted on the original motion by Chair Stintz.
The motion by Chair Stintz carried.
Chair Stintz then moved adoption of the item, as amended.
The motion by Chair Stintz carried.